Prime Minister Julia Gillard faces 2013 with a daunting list of challenges. Her party still trails the Coalition in the polls, unemployment has risen again, and large swaths of the country are still smouldering after bushfires caused havoc through the New Year break.

Ms Gillard joined RN Breakfast’s John Doyle this morning to discuss the year ahead, having recently returned to Sydney from fire-ravaged Coonabarabran. She described locals who lost their homes in the bushfires as ‘brave’ and ‘stoic’, and said the legacy of the Black Saturday fires in 2009 -- with new early warning systems and mobile alerts -- had helped to save many lives.

‘I think we’ve got to manage the environment,’ Ms Gillard said. ‘But we’ve also got to do something that we find quite hard as modern human beings because we think we can dominate and control everything. We do need to recognise that... we will face a natural disaster from time to time, and we are not always going to be able to control or defeat it.’

Ms Gillard spent her own Christmas holiday in Adelaide, where she turned her hand to cooking, producing a turkey with trimmings which she described as ‘edible’. Her ten day break from politics allowed her time to reflect on a year in which she says parliament was dominated by ‘a negative blitzkrieg campaign’ as the opposition tried to apply pressure and force an election.

‘We’ve got a lot of governing to do before we go and fight the election,’ Ms Gillard said. ‘We live in a time where our region of the world is coming into its own. I can’t predict everything that’s going to happen this century, but one thing that will definitely happen is we will continue to see Asia’s rise, and we’ve got to be ready for it.’

Education has emerged as federal Labor’s main focus for the coming year, and Ms Gillard admitted that standards have slipped, with recent studies showing Australian schoolchildren are now ranked 27 and 22 in the world for literacy and maths/science skills.

‘The truth is in that battleground we’ve seen some sliding back in those Australian standards, so a big feature of this year will be a school reform agenda associated with a new funding system so we can say that our kids are getting the best of the best. When it comes to education we need to be in the top five schooling systems in the world.’

Part of improving Australian education, Ms Gillard said, is catering to the evolving needs of modern families, where it's often the case that both parents work, raise children, and potentially also care for ageing parents. She pointed to the introduction of two weeks paid parental leave for fathers, passed into law last year, as a measure the government has taken to recognise the needs of new age dads. The National Disability Insurance Scheme will also help take some pressure off families caring for ageing parents, she said.

‘I want us as a government to always be responding to those modern needs,’ Ms Gillard said.

Rolling out the NDIS was a bruising and lengthy struggle, after the Queensland and Western Australian state governments held out in negotiations. Ms Gillard admitted that the current system of federal, state and local government is dysfunctional.

‘The truth is if you were starting again with a blank page, if you were just there with a map of Australia, with a country our size, with an economy our size, and said let's create a system of government, I don’t think you’d create the one we’ve got now. I think you’d create a two-tier system so you would have large regional councils which intersected with a federal government.’

‘But state governments are going to be there, and you know, what would we do without State of Origin matches and the like? I think everyone would go a bit crazy.’

And how does she keep herself from going crazy in one of the most brutal and personal parliaments in Australia’s history?

‘Well the knitting definitely. Being prime minister is a pretty stressful job. There’s a lot on your shoulders, you often get back home late at night, and you’ve got to get some sleep, you can’t stay up pottering around for hours.'

‘The thing that’s good about the knitting is that it takes up enough of your attention that your mind can’t race at a million miles an hour, but it's repetitive and soothing, so it helps you transition from work.’